Before the devastating tsunamis of 2004 rolled over the coastlands around the Indian Ocean, local animals seemed to sense the coming disaster. Eyewitnesses reported that elephants moved to higher ground, flamingos abandoned their low-lying nesting areas, and buffalo stampeded to a hilltop—in some cases hours before the deadly waves struck.1
Scientists are still trying to figure out how the animals were alerted to the danger well before any of the human-designed warning systems.
In the same way, market analysts have been looking for early predictors of a recession. Something that will act as a canary in the coal mine to warn investors to take action before a downturn hits.
To this end people have identified trends in obscure corners of the economy as predictors of a looming market correction. Here are a few examples.2
Men’s Underwear Index – When sales of briefs and boxers are down, a recession is predicted to follow. This is based on the observation that men put off purchasing apparel when times are tough. Especially items that nobody else will see.
Cardboard Box Index – Since most goods are shipped in cardboard boxes, when companies are ordering fewer of these containers, a slowdown may be on the horizon.
Diaper Rash Index – Some believe that during a downturn parents will try to save money by changing diapers less often, thus causing an uptick in the sales of ointments and creams to treat irritation.
Diesel Index – A drop in the price at the pump predicts a recession. The Wall Street Journal recently reported that the price of diesel has fallen significantly from what were recent highs. They attributed the change to a demand slowdown in the trucking industry. Companies are shipping fewer goods and some see this as an early indicator of a coming downturn.3
However, rather than leave this theory unchallenged, the WSJ points out that there are many factors that likely have contributed to cheaper diesel. For example, prices had previously spiked on news of the Russian invasion of Ukraine. Globally, there was less demand for fuel over the winter. And companies are still sitting on inventory surpluses they built up due to the pandemic.
So, while dropping diesel prices can be a precursor to a recession, there are lots of other reasons that might be contributing factors. The same can be said for the other so-called “indexes” or indicators listed above. A slump in men’s underwear sales may indicate a downturn is on its way, or it could simply be the result of changes in fashion or demographics.
Unfortunately, there’s no reliable way to predict major swings in the economy precisely. History in global markets indicates that trying to get the timing right by anticipating changes is more likely to be detrimental to your long-term strategy.
Knowing this, the prudent investor will hold a properly diversified portfolio, one that can take advantage of unexpected gains, while at the same time seeking to mitigate losses during volatility. He or she will follow a plan tailored to their unique income situation, retirement goals, and time horizon—all in partnership with a trusted advisor.
If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020
Disclosure: This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter. Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City. The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.